As of October 29, 2007, Overseas Shipping Group (OSG) owns and leases 106 ships that transport crude oil, petroleum products, liquefied natural gas, and dry cargo around the world. In recent years, OSG has focused on both expanding and diversifying its fleet, investing billions of dollars to acquire other, smaller shipping companies. That said, 68.9% of their revenues still came from crude oil transport at the end of 2006.
Not surprisingly, oil supply and demand have a significant impact on OSG's business. The tremendous appetite for energy in developing countries like China and India has driven increased demand for OSG's services in recent years.
OSG operates 137 vessels. Specifically, they operate crude oil tankers, international product tankers (which transport refined oil products), a U.S. Flagged Fleet (subject to the Jones Act , which requires vessels operating in American ports to be domestically built, owned, and operated), and LNG (liquefied natural gas) vessels. Investors would thus be getting exposure to both domestic and foreign tanker, dry bulk, and LNG needs.
OSG employs its services in a variety of ways. Their crude tankers are primarily employed in spot markets in commercial pools. Spot markets arise when customers who have shipping needs enter into immediate contracts to have their products shipped by vessels that are already in the immediate the vicinity. In pools, groups of similar vessels with different owners are put under one manager. This arrangement allows for economies of scale and higher prices for their participants. On the other hand, OSG's international product tankers are primarily chartered. These contracts are for the use of a vessel for specific voyages at specified rates. This business is much more stable for OSG, but historically pays at a much lower rate than spot market employments.
OSG is committed to both growth and diversification. It is able to fund these strategies through its cash hand, boasting a 28% cash to market cap ratio as of the end of Quarter 3 in 2007. Growth and diversification has led to big gains in revenue over the past four years. In 2005, OSG spent $1.35 billion to acquire Stelmar Shipping Ltd., receiving many product carriers. In 2006, OSG entered into the liquefied natural gas transport market. At the end of that year, OSG bought Maritrans Inc. for $506 million and secured a lead role in the U.S. Flag Jones Act market. While these acquisitions have been the cause of OSG's recent growth, they are also very risky. There is uncertainty in acquiring a fleet of ships whose quality could be in question.
The following chart breaks down OSG's revenue over the past three years according to activity. Growth in total revenue was 4.7% from 2005 to 2006, though profits fell 9%.
Some of OSG's major competitors include:
OSG is in control of 11.7 million dwt of shipping capacity .
OSG distinguishes itself by holding a highly diversified fleet. While all of these companies concentrate in the shipment of crude oil, OSG is different in the extent to which they employ a mix of vessels they own and vessels they charter and in the degree to which they expose themselves to other markets, like petroleum products and liquefied natural gas. Additionally, OSG charters a relatively large number of the vessels they operate. This strategy provides for a more stable asset value and is especially appropriate if worldwide tanker supply continues to grow and current vessel values decline.
Finally, OSG dominates Teekay and GMR in the domestic sector, and companies like Frontline and Tsakos don't even compete because of high barriers to entry caused by the Jones Act.
|Company||Ships owned||Ships chartered||Total DWT (millions)|
Note that dwts measure shipping capacity.
Articles like these put the conseumr in the driver seat-very important.